Bad loan crisis: The Narendra Modi government has taken stern steps against bad loans in the country's banking system.

Bad loan crisis: The Narendra Modi government has taken stern steps against bad loans in the country’s banking system. (Representative image by IE)

Bad loan crisis: The Narendra Modi government has taken stern steps against bad loans in the country’s banking system. However, a threat of plausible non-performing assets (NPAs), is still looming, according to Indian Express report. Notably, the banking sector is saddled with NPAs of over Rs 8 lakh crore, of which Rs 6 laks crore is with public sector banks (PSBs), PTI reported. Reserve Bank of India had recently identified 12 accounts for Insolvency and Bankruptcy Code (IBC) proceedings with each of them having over Rs 5,000 crore of outstanding loans. The 12 identified cases account for 25 per cent or about Rs 2 lakh crore of NPAs, as per reports. Calling bad loans problem a legacy issue, Niti Aayog Vice Chairman Arvind Panagariya has said resolution of the non-performing assets (NPAs) was on right track and would open the door to rapid credit expansion and growth, PTI reported yesterday.

Here are three fresh pressure points which can give the government a headache.

1. Farm-loan waivers across states like Uttar Pradesh, Madhya Pradesh and Maharashtra. This step by the state governments have already started to impact banks’s loan books, according IE report.

2. The state governments have been renegotiating power purchase agreements signed with renewable and thermal generators. This is also one of emerging triggers.

3. The rise of cab aggregators- such as Ola, Uber- had led to falling of taxi drivers’ income. This has forced some of the country’s biggest lenders to cut back on new car loans and tweak underwriting norms for this category — one of the fast-growing segments in the auto loan sector over the last five years, IE reported.

However, Panagariya had assured “Now we are on absolutely right track. Once we solve the NPAs issue, it will open up also the door to faster credit expansion. If this is done, this problem of twin balance sheet issue (over-leveraged companies and bad-loan-encumbered banks) will get addressed at the result of this.” “So banks will be better equipped to lend and on the sides of borrowers there will be greater appetite,” Panagariya told PTI.

discussions with drivers indicate that a lot of the ola/uber drivers are defaulting on their vehicle loans. incomes have fallen and large bulky expenditures like servicing/insurance are taking a toll on disposable income. the increasing supply of vehicles is also on account of influx of drivers from other states as well as people wanting to have a second source of income by keeping drivers at fixed costs.
indications are that a large number of vehicles are being repossessed or simply abandoned for lack of ability to service the loans.